Investors shrug off geopolitical crisis

Asian indices will rebound when the markets open this morning after the S&P500 rallied to a record high and China’s leaders announced their commitment to maintain economic growth at 7.5% this year. 

As the risk of military confrontation in the Ukraine lowered, the markets celebrated with a shift towards risk. This is a reversal of the previous day. The renewed momentum in the US equity markets will follow through into Asia after China’s optimistic outlook on their economy. 

After Putin played down the political stakes in the Ukrainian crisis, investors shrugged off their initial discomfort of a geopolitical crisis that would potentially escalate. The S&P 500 has finally closed with a new high and a positive for the year. The better US economic data that failed to impress yesterday became the focal point, after political tensions eased between Russia and the Ukraine. As we head into this week’s economic releases, positive numbers are expected in the US. 

While investors might have concerns on the challenges facing China, the takeaway is the leader’s determination to combat slowing growth and the positive implications on commodities. The balancing act of curbing credit and keeping growth stable has had an impact on their manufacturing sector. Manufacturing data for both January and February has shown a slowdown, while trade data has exceeded expectations.

The mixed data for both the US and China, puts forward the discussion of volatility. The global macroeconomic landscape will become more important as the fundamental driver of growth. The uneven data we have been seeing since the start of the year has been unexpected, thus putting investors in a cautious position. There are good reasons to be cautious, despite improvements in the global manufacturing PMI from Markit that showed February at 53.3 from January’s 53.

The survey showed the slowdown in China has affected outputs and jobs. Emerging Asian countries like Indonesia, India and Vietnam are struggling with slower production. The point to note is an unusual jump in the US survey, taking that out of the equation the global manufacturing PMI number will be slower.

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